Mortgage companies certified by CalVet partner with CalVet to originate CalVet mortgages directly to veterans. Mortgages funds for the CalVet mortgage program re raised by the sale of California state general obligation bonds.

Qualifying for CalVet

CalVet mortgages are available to qualified veterans, whether or not the veteran lived in California when they entered active duty. [M & V C §980]

A veteran may qualify for CalVet if they served in active duty U.S. military, naval or air service for no less than 90 days. [M & V C §980(a)(5)]

A veteran may also qualify if they were called to and released under honorable conditions from active duty as a member of the reserves or National Guard when a presidential executive order specifies the U.S. is engaged in combat or homeland defense. [M & V C §980(a)(3)]

California residents who served and were honorably discharged, or honorably released from active duty during World Wars I and II, the Korean Conflict and the Vietnam War, and citizens on active duty during Desert Storm and Operation Desert Shield or Operation Restore Hope in Somalia, are also veterans who may qualify for a CalVet mortgage. [M & V C §980(a)(2)]

Further, a person is a qualified veteran if they served in the U.S. Merchant Marine Service and were granted veteran status by the U.S. Secretary of Defense. [M & V C §980(a)(4)]

An unremarried surviving spouse of a veteran who lived in California for six months prior to entering active military duty may qualify for a CalVet mortgage if the veteran:

was killed in the line of duty;

died after discharge from injuries incurred in the line of duty;

is being held as a prisoner of war; or

is designated as missing in action. [M & V C §987.58(b)-(c)]

When negotiating the purchase of a home, a veteran seeking a CalVet mortgage submits an application to CalVet or a direct mortgage lender certified by CalVet.

Once CalVet determines the veteran (or their surviving spouse) is eligible for a mortgage, CalVet needs to approve the home or farm the veteran is purchasing, or plans for any proposed residence to be constructed by the veteran. [M & V C §987.59]

How it works

If the veteran qualifies for a CalVet mortgage, and the property and the price the veteran agreed to pay for the property are approved, CalVet intervenes in the sales transaction by becoming the purchaser of the property in lieu of the veteran, an archaic mortgage financing arrangement often also used to avoid the appearance of charging interest.

CalVet, in a legally fictitious transaction, “resells” the property to the veteran by entering into a CalVet mortgage agreement with the veteran for the amount advanced by CalVet as purchase-assist financing. [M & V C §987.60]

CalVet holds legal title to the property as security for repayment of the loan. The veteran is the actual owner of the property, with equitable ownership. It is a title arrangement similar to a loan secured by a motor vehicle, or a sale of real estate on a land sales contract, or leasing arrangement with title conveyed to the homebuyer on expiration of the lease without further monies due. [M & V C §987.60(a)(3)(A)]

Problems with CalVet

The good thing about CalVet is that veterans receive below market interest rates on their mortgages. CalVet credit standards are also more flexible than conventional financing credit standards.

However, the good doesn’t cancel out the bad. The downsides of CalVet financing are:

the mortgage’s adjustable rate make the mortgage payment unreliable for the homeowner;

the structure of the mortgage is the same as a land sales contract, with title vested in the name of CalVet — not the veteran homebuyer; and

compared to FHA-insured and VA-guaranteed mortgages, CalVet mortgages are more restrictive against the veteran’s rights of possession and equity financing arrangement.

The CalVet program is also somewhat redundant. Veterans already have the option of applying for a VA-guaranteed mortgage which:

is fixed over the life of the mortgage (CalVet mortgages are ARMs);

has zero down payment requirements (the standard CalVet mortgage requires a 3% down payment, or a veteran can use their VA entitlement to obtain a zero down payment mortgage);

4 Comments

LSA Anaconda
on May 21, 2017 at 6:22 pm

This article has so much misinformation, I don’t know where to start.

CalVet loans are ARMs: Nope, the are fixed rate mortgages.

CalVet requires the veteran to live in the home for the life of the mortgage: False again! You can leave the state and rent your home out if you wish. However, you must get a waiver of occupancy from CalVet each year. This is pretty pro forma. I did this for 3 straight years.

CalVet requires the veteran to carry flood, earthquake and/fire insurance: Your pants are on fire with this whopper! CaVet requires the veteran to purchase NO INSURANCE on the property!!! CaVet carries the hazard insurance including an earthquake policy. The veteran only need a renters insurance policy for the contents of the home. In fact, this is the biggest selling point for a CalVet loan since the interest rate is usually not competitive with the rate one can get from a commercial lender.

I had a veteran that when i had met him had already applied for a CalVet Loan in Sacramento, CA and was approved for a $400,000 purchase. We found a home and everything was going along good the home appraised. The interest rate was 4.25% fixed 30 years. Then the loan officer showed us the estimated closing costs and besides fire insurance they also wanted hazard insurance for flood and earthquake insurance which was another 700.00 a year on top of normal fire insurance. When I told them it was not in a flood or earthquake zone they said it was required on all loans no matter what. I called one of my bank lenders at Chase and asked them what their rates are and whether they required hazard insurance and they said no. Switched the loan veteran got a 3.625 interest rate and saved $200.00 per month on payment and $2500.00 in closing costs. It pays to shop around and check out your options.

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